Nautical or nice? Port of Melbourne privatisation and progress of plans for second port explained

By Adam Carey

March 6, 2015 — 12.49pm

A pledge to flog the Port of Melbourne was one of the few bipartisan policies taken to the recent state election. Where is it up to and what's next?

The port is out of sight, out of mind for most of the city's 4 million people, but in many ways it is the key to Melbourne's fortunes. The locus for more than a third of Australia's container trade, the port and the freight industry that it drives makes up 8 per cent of gross state product - or almost one in every $10 Victoria earns.

The case for privatisation of the Port of Melbourne has not been thoroughly thrashed out by residents. Credit:Craig Abraham

It is also virtually the last big container port in Australia in public hands, a valuable state asset the Andrews government is determined to sell off so that it can pay for its signature election promise to remove 50 level crossings.

Selling the port - or more accurately, leasing it out long-term - is a policy both sides of politics took to November's state election, though each had different ideas about how to use the one-off windfall.

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Will it sail through the Victorian upper house?

The sale's cross-party support suggests any legislation, if required, should pass through Parliament without a hitch - but not necessarily. The Victorian Greens don't want the port sold, and their opposition could prove a stumbling block for Labor given the minor party holds the balance of power in the upper house along with a clutch of independents.

The Coalition would be odds-on to approve the port sale, but not without first reading the fine print. One potential flash point is over how many years the port would be leased to a private operator. The former Napthine government planned to offer a medium-term lease of about 40 years to avoid locking up valuable inner-city real estate for a century, but Labor may seek a longer-term lease to increase the sale price.

If passed by the parliament, what is the estimated sale price? Will the Abbott government pony up?

The value of the lease has been estimated at between $5 billion for a medium-term and $6 billion for a longer-term lease, although these are speculative figures that have been neither confirmed nor denied by a government that is loath to name its asking price in public.

Other recent port privatisations in Australia provide some guidance. In 2013, Port Botany, Sydney's biggest port, was sold for $4.31 billion and Port Kembla for $0.76 billion under respective 99-year leases, netting the NSW government $5 billion. The Queensland government leased the Port of Brisbane for 99 years in 2010, in a deal worth $2.3 billion.

Whatever price Melbourne's port ultimately attracts, Labor can confidently add 15 per cent, thanks to the Abbott government's largesse when it comes to flogging off state assets. The "asset recycling fund" is a bit of Canberra newspeak for a carrot the government is dangling before any state government that privatises a public asset so it can pay for "new productive infrastructure". The ACT government last month scored $60 million from the feds towards a new light rail line in Canberra after selling off a swathe of government buildings and public housing for $400 million.

What has the government promised to spend it on?

The Andrews government has said it will use the proceeds of the port sale to create a fund of its own, the Victorian Transport Building Fund, which will manage Labor's ambitious level crossing removal plan. The 50 grade separations will in turn trigger the sale of state-owned railway land, the proceeds of which will be funnelled back into Labor's fund for other transport projects.

Privatisation of state assets helped unseat the Campbell Newman LNP government in Queensland and is proving similarly vexing for Mike Baird's Liberals in New South Wales. Is flogging off one of our few remaining, profitable public assets really such a good thing - or might there be a late groundswell of opposition in Victoria?

Privatisation of public assets is so '90s in Victoria. Utilities, public transport and roads were all sold off under Jeff Kennett, which may explain why there has been so little public debate, so far, about whether selling the port is a good thing. Given the tight, eight-year timeline Labor has set itself to knock off its hit-list of 50 level crossings, it clearly has not factored in lost time locked in lengthy public consultation about the plan's merits. Having taken the plan to the election, it will pursue its mandate, and is committed to finalising the sale in 2015-16.

Yet the port is a very good earner for the state. It returned a public dividend of $43.7 million last financial year, from an after-tax profit of $77.8 million. Victoria's "freight task" - the amount of stuff that gets shipped, trucked and railed around - is officially forecast to treble from 2012 levels by 2050, so business is not exactly slowing down either. One danger is that Melbourne could lose its top status among Australia's ports to an interstate rival, a threat foreshadowed last week when stevedores expressed alarm at a proposed 800 per cent rent increase.

What does a sale mean for the port's long-term future? Where does this leave the development of a second port? (The Coalition backed Hastings, Labor prefers BayWest)

The port's inner city location is a recipe for growing conflict - with nearby residents and with commuters who must share the roads and freeways with hundreds of thousands of trucks. A long-term freight plan released by the former Napthine government foresaw the Port of Melbourne winding down in decades ahead as the Port of Hastings, south-east of Melbourne gradually outgrew it in size and activity. This predicted shift in the balance of power risked complicating the port's privatisation, so the Coalition proposed that Hastings be offered for lease alongside the Port of Melbourne. This pairing would avoid the kind of competitive tension that sees Melbourne Airport swoop on Avalon Airport's every move like a hawk hunting a field mouse.

Labor may seek to include BayWest - its own proposed second port near Avalon - in the lease deal to avoid the same bind, although such a deal could stumble on the fact that BayWest doesn't actually exist yet.

Given the major parties can't agree on the best site, and the long development time to create such a major asset, are we potentially in an era of endless business cases and feasibility studies with changes of government?

With a $1.6 billion expansion of Webb Dock under way, the Port of Melbourne is not expected to reach capacity until the late 2020s or even early 2030s. This gives the Andrews government time to assess the viability of its BayWest plan, which looks good on paper because it is close to road and rail and would provide a much needed jobs boost to Geelong. But the proposal may run aground if a recent department study that found that BayWest is too shallow for big ships proves true. If so, Labor may be forced to turn once more to Hastings, which was its preferred location the last time it was in government.